April 27, 2018 / 10:58 AM / in a year

CEE MARKETS-Bond yields drop after ECB, ahead of Polish auctions

    * Bonds benefit from ECB comments, reversal of US yield rise
    * Demand relatively low at Polish auction, but sentiment is
    * Pressure on bonds, currencies may return, US yields eyed

    By Sandor Peto and Marcin Goettig
    BUDAPEST/WARSAW, April 27 (Reuters) - Central European
government bond yields declined further on Friday, along with
those of the United States and Germany, and also supported by
relatively low supply at a Polish bond auction.
    Bonds and currencies in the region are rebounding from
multi-week lows after the U.S. 10-year Treasury bill dipped
below three percent on Thursday and the European Central Bank
played down concerns over soft euro zone economic data.
    The region's main currencies firmed slightly on Friday.
    Polish, Hungarian and Czech 5- and 10-year bond yields were
down 2-3 basis points. The Polish 10-year paper traded at 3.02
percent, and its Hungarian peer at 2.52 percent.
    Poland sold bonds worth four billion zloty at an auction on
Friday. The government cut the offer on Wednesday to four
billion from a four to eight billion zloty range projected
    Demand totalling 5.15 billion zloty was relatively weak,
given the expiry of bonds worth 11.5 billion zloty on Thursday.
    But the low supply helped keep yields low and sentiment was
moderately positive, one Warsaw-based trader said.
    Poland's government budget deficit may rise, but not before
next year, the trader said.
    "As long as there is growth, the fiscal situation is not a
problem," the trader added.
    Central European  economies grow robustly, but inflation
figures have been mild so far this year in most of the region. 
    Hungary's last two bi-weekly bond auctions drew strong
demand after its relatively low yields tracked U.S. peers
    The government boosted its original offers, selling bonds
worth more than 100 billion forints at both auction as it
frontloads its 2018 issuance ahead of an expected rise in yields
later this year. 
    Hungarian and Polish yields are seen tracking a likely
global rise even though their central banks are not worried
about inflation and have signalled that they may keep rates on
hold for years.
    Czech, and short-term Romanian debt yields also declined.
Their central banks have started to increase their interest
rates to defend their inflation targets.
    But in Romania, where inflation surged to a 5-year high of
five percent last month, most yields were steady or slightly
    Romania's president Klaus Iohannis asked Prime Minister
Viorica Dancila to resign on Friday after the government
approved a secret memorandum to move the country's embassy in
Israel to Jerusalem and failed to consult the president on it.
    While regional markets usually ignore politics, currencies
and bonds could face pressure again if U.S. yields resume their
rise, market participants said.
    The Czech central bank's meeting next Thursday may pose 
additional risks to the crown as the comments from the meeting
may point to a slower-than-expected further rise in interest
rates, KBC group analysts said in a note.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1215 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4700   25.4880    +0.07%    +0.28%
 crown      >                                       
 Hungary    <EURHUF=  312.7500  312.7500    +0.00%    -0.59%
 forint     >                                       
 Polish     <EURPLN=    4.2249    4.2306    +0.13%    -1.15%
 zloty      >                                       
 Romanian   <EURRON=    4.6625    4.6600    -0.05%    +0.37%
 leu        >                                       
 Croatian   <EURHRK=    7.4210    7.4205    -0.01%    +0.13%
 kuna       >                                       
 Serbian    <EURRSD=  118.0000  118.1100    +0.09%    +0.42%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1124.06  1124.640    -0.05%    +4.26%
 Budapest             38338.20  38265.35    +0.19%    -2.64%
 Warsaw                2283.02   2283.15    -0.01%    -7.24%
 Bucharest             8907.27   8906.42    +0.01%   +14.88%
 Ljubljana  <.SBITOP    841.28    841.28    +0.00%    +4.33%
 Zagreb                1796.14   1793.15    +0.17%    -2.54%
 Belgrade   <.BELEX1    739.29    740.57    -0.17%    -2.70%
 Sofia                  660.76    660.38    +0.06%    -2.46%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.7340   -0.1600   +130bps    -14bps
   5-year   <CZ5YT=R    1.1970   -0.0130   +124bps     +0bps
   10-year  <CZ10YT=    1.7350   -0.0290   +116bps     -1bps
   2-year   <PL2YT=R    1.5130   -0.0020   +208bps     +2bps
   5-year   <PL5YT=R    2.3410   -0.0230   +238bps     -1bps
   10-year  <PL10YT=    3.0250   -0.0260   +245bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.95      1.04      1.17      0.90
 Hungary                  0.07      0.11      0.17      0.04
 Poland                   1.72      1.73      1.75      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Agnieszka Barteczko and Marcin Goettig
in Warsaw, Editing by William Maclean)
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